EUR/JPY clings to intraday gains, struggles to capitalize on move beyond mid-158.00s

• EUR/JPY gains positive traction for the second straight day, albeit the upside seems limited.
• The divergent ECB-BoJ policy expectations might keep a lid on any further appreciating move.
• Traders might also prefer to move to the sidelines ahead of the ECB meeting on Thursday.

The EUR/JPY cross attracts some buyers for the second straight day on Tuesday and steadily climbs back to the mid-158.00s during the first half of the European session. The fundamental backdrop, however, warrants some before confirming that spot prices have formed a near-term bottom and positioning for any meaningful recovery from a one-month low touched on Monday. 

Data published on Monday showed that Japan's economy grew at a slightly slower pace than initially reported in the second quarter. This, along with a stable performance around the equity markets, is seen undermining the Japanese Yen (JPY) and lending some support to the EUR/JPY cross higher. That said, the divergent European Central Bank (ECB)-Bank of Japan (BoJ) policy expectations might hold back traders from placing aggressive bullish bets and cap the upside. 

The ECB is almost certain to lower interest rates again at its September policy meeting this Thursday in the wake of declining inflation in the Eurozone, which dropped to the lowest level in over three years in August. In contrast, the markets have been pricing in the possibility of another BoJ interest rate hike by the end of this year. This makes it prudent to wait for strong follow-through buying before confirming that the EUR/JPY cross has bottomed out and positioning for further gains.

Traders might also prefer to wait for the ECB's newest batch of economic forecasts, which will play a key role in influencing the Euro price dynamics in the near term and provide a fresh directional impetus to the EUR/JPY cross. Nevertheless, the aforementioned fundamental backdrop seems tilted in favor of bearish traders, suggesting that any subsequent move up might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly.